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September 8, 2021
  • Japanese stocks rally on stimulus hopes following PM’s resignation
  • Special focus: The Circular Economy

This week, we’re taking a step back to take a look at the big picture on sustainability questions: How can companies truly integrate ESG concerns into their business models? And what needs to change structurally in our economic model to make that a reality? The circular economy may be the answer.

First, we need to be clear-eyed about the nature of the problem before us. Renewable energy and energy efficiency, which often dominate debates around net-zero emissions targets, can only address 55% of greenhouse gas emissions. A sustainable future requires a deeper appraisal of how existing patterns of production and consumption contribute to ecological disaster.

In 2019, over 92 billion tonnes of materials were extracted and processed, contributing to about half of global CO2 emissions. At the end of their life cycle these processed products generate waste, further devastating the environment. This traditional economic model is often described as ‘linear,’ based on a Take-Make-Consume-Throw Away pattern. Think of fast-fashion or other cheaply manufactured goods. Products within this system are designed to have a limited life span to encourage consumers to buy them again – waste and natural resource exploitation are built in.

The circular economy is an alternative method of production and consumption that is regenerative by intent and design, eliminating waste and ensuring the continual safe use of natural resources. The life cycle of products is extended through sharing, leasing, reusing, and recycling.

Companies may fairly wonder how embracing such a radical departure from traditional economic models – one that many view as going against the logic of the market – can work for them. In truth, as with several wider ESG concerns, there are significant advantages.

By recycling products and inputs, companies can help to reduce costs. They can also mitigate risks on the supply chain side through reduced exposure to volatile commodity prices. Down cycling – breaking down used products to create materials for other goods – can help add generate revenue streams for businesses. Furthermore, companies integrating into the circular economy spur innovation, thus increasing the quality of their products and value-added services that meet customer needs more fully.

According to the World Economic Forum, the circular economy can yield $4.5 trillion in economic benefits by 2030. With more and more investors wary of the perils of ‘greenwashing’ in ESG debates, looking out for companies embracing the circular economy should be a key concern.

India’s economy more severely hit by latest Delta wave than anticipated

New data suggests the Indian economy suffered a greater economic hit than anticipated during its Delta variant wave earlier this year. When adjusted for low base effects from 2020, India’s GDP shrank 10.5% QoQ in Q2 of this year, following a 0.9% decline in Q1. India’s GDP has now fallen back to 84% of its pre-pandemic trend. Private consumption dropped 13.5% QoQ, while fixed investments collapsed 21.5%. Exports rose 5.3% after an 87.9% boost in Q1. The outlook for Q3 is rosier, however, with activity in leisure and retail picking up and mobility gradually returning to normality.

US jobs report disappoints, potentially delaying taper decision

On the back of a dovish statement from the US Federal Reserve at Jackson Hole, the US labour market added just 235k jobs in August –the smallest gain in seven months and well below expectations of a rise of between 600k and 800k jobs.

Particularly disconcerting were payroll figures from the leisure and hospitality sectors, which added zero jobs in August after an average of +406k over the previous two months. The weakening may be a consequence of reduced domestic tourism due to large epidemics caused by the Delta variant, particularly in Southern states.

For the markets, the disappointing jobs report raises the likelihood of the Fed’s taper decision being postponed into 2022. The Fed has emphasised that labour market developments will have a major bearing on any move towards tapering. It’s quite possible that tapering discussions will be delayed to December’s (rather than November’s) meeting when labour market data for September and October will be available.

A further headache for the Fed arises from the removal of Covid-related unemployment benefits of $300 per week since Labor Day (6th September), which may complicate the situation on the consumer side. With supply chain pressures seemingly having peaked, inflationary pressures may well ease in the weeks ahead.

  • 14th September: US CPI inflation is expected to remain stable in August at around 4.3%, as the supply side pressures moderate.
  • 16th September: After slipping back in July, US retail sales will indicate the extent to which the current delta wave is continuing to impact upon private consumption.
  • 17th September: Eurozone CPI inflation figures for August are expected to remain stable at 3%.

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